Australian Trade Commission

[17:49]

CHAIR: We are moving on now to Austrade, and I know that Senator Fawcett has some questions.

Senator FAWCETT: I have some questions on the EMDG scheme, if somebody knows about that.

CHAIR: It is Mr Gosper.

Senator FAWCETT: Mr Gosper, could you outline the proposed changes to the EMDG scheme contained in the amendment bill that was introduced in the House of Representatives yesterday?

Mr Gosper : There are two main amendments, and I will get colleagues to add, because there are a few others that are less critical. The first is to reduce the amount that we are funding by $25 million, which will take it down from some $150 million to $125 million. The second is to do some rebalancing of grants so that we increase the number of grants to eight for applicants to emerging and growth markets and reduce to five the number of grants that might be given to applicants for the so-called 'mature markets': Europe, the United States and so forth. That is a particular measure consistent with the recent review of Austrade and the desire to rebalance resources towards those growth and emerging markets, particularly in Asia.

The $25 million represents, amongst other things, a contribution to fiscal consolidation. I will ask my colleague Mr Yuile to add on other changes that are proposed as part of that bill.

Mr Yuile : Besides the realignment of the grants—the numbers that Mr Gosper has just mentioned—there is also a change to the way the administrative budget will be determined. It will be undertaken by the minister as a determination. There are also provisions in relation to preventing further approval of joint ventures, removing event promoters from the EMDG scheme and preventing payment of grants wherein EMDG consultants are assessed to be not fit and proper persons. It is a provision in the act already for the payment of EMDG grants to claimants. It is also preventing payment of grants where EMDG consultants are similarly assessed. It enables grants to be paid more quickly where funding is available and requires applicants to pay directly for eligible expenses.

Senator FAWCETT: Before this bill was introduced in the House of Representatives is it a fair assumption that you would have consulted stakeholders?

Mr Yuile : The decision of the government was to make the change to the realignment. We have been in consultation with the industry, with stakeholders, in relation to the way in which those grants will be administered.

Senator FAWCETT: Have any concerns been raised by any of the stakeholders that you have consulted?

Mr Yuile : They have certainly raised issues, and Mr Vickers has been involved directly in those consultations so it would probably be easier and better for him to answer. They have raised some issues around the manner in which that revised grant arrangement is to be administered, and we have certainly listened to those representations, and the minister has now come to a conclusion about that. Perhaps I will let Mr Vickers tell you, because there has been a range of views.

Mr Vickers : The key change in the bill, and the one which has in a sense provoked a response from industry, is in the way the grants are paid in emerging markets and developed markets. There are two options available. The option in the bill is that you can receive grants in all markets in your first five years but only in emerging and frontier markets in six, seven and eight. The alternative proposition is that you can receive any five grants in developed markets and eight grants in emerging and frontier markets, but you can mix them up. You can have them not in the first five, if I can put it as simply as that.

A number of the industry associations indicated they would prefer more flexibility for their members so that members could have any of their five grants in the developed markets, but this creates a lot of recordkeeping requirements for applicants. One of the arguments against that, and one of the reasons why the government chose the provisions that are in the bill, is that it would vastly reduce the recordkeeping requirements for small businesses.

Senator FAWCETT: So the applicants, who bear the burden of the additional records, wanted the flexibility, but the government chose to dictate that they knew better than small business, who were indeed the ones asking for that flexibility and prepared to wear the burden. Have I got that correct?

Mr Vickers : I think there are some different views. There was not a considered view by all applicants, and I would say that we did not consult applicants directly; we consulted with industry associations. Some associations took the view that it would be better to have variety, but some other industry associations took the view that it would be better to have lower compliance costs. So there was not a consistent view.

Senator FAWCETT: Would you be able to provide the committee with a summary of the positions of various groups?

Mr Vickers : I might have to take that on notice. The discussions with the industry associations are necessarily confidential and I would have to consider that before I could provide their opinions to the committee.

Senator FAWCETT: When did the consultations take place?

Mr Vickers : They took place in January, I think, from recollection. We certainly had some discussions prior to the end of the year, but there were some discussions in January.

Senator FAWCETT: So the analysis of the change of distribution was purely based on previous reviews. You did not do any analysis looking at the current and future markets as opposed to previous reviews of the scheme?

Mr Vickers : We have quite a good quality database that tells us where claims are made each year, but it is historical, as you can appreciate. It looks at what has been the pattern of claims over the last five years. We use that as the basis for the modelling for the changes.

Senator FAWCETT: Looking back over the historical records, do you have any evidence to indicate that, for example, for $1 of grant money given, it generated X dollars of export business activity in Australia?

Mr Vickers : We have done econometric studies previously that looked at the effect of $1 of grant money and the return to the national interest, if I can put it that way. That was done in the Mortimer review, and some work was done in the year following the Mortimer review, so it is several years ago now, but, yes, we have conducted those studies.

Senator FAWCETT: What was the nature of the metrics that came out?

Mr Vickers : I would have to refresh my memory of that, but my general recollection is that, for every $1 of grant that is paid, there is $5.38 in benefits achieved by the national economy if you consider the effect of tax and spillovers and productivity gains by the exporters.

Senator FAWCETT: So it is a five to one ratio, for every dollar spent.

Mr Vickers : That is a very full accounting of all the benefits. I appreciate this is a very technical area and a number of schemes would be assessed not using these spillover—

Senator FAWCETT: But, in broad terms, it is definitely a plus and it is in the order of five to one.

Mr Vickers : Yes.

Senator FAWCETT: So what the Australian taxpayer can take out of that, then, is that, in order to try and achieve a political promise to make a surplus, we have saved $25 million in the short term and cost the economy $125 million in the medium term. You do not need to respond to that. Thank you very much.

Senator KROGER: I will put some of my questions on notice because they go into some detail, but in particular I wanted to direct questions to the Export Market Development Grants. First, I am interested to know what definition Austrade uses for small business.

Mr Vickers : Austrade does not apply a definition that is different from that generally used in government. We generally apply fewer than 20 employees and less than $5 million in turnover, but we do track applicants statistically, so we can apply any particular definition to those applicants.

Senator KROGER: Sorry, what do you mean by 'track applicants'?

Mr Vickers : When applicants make an application, they provide us with information about their turnover and their number of employees, so we can apply any particular definition.

Senator KROGER: So you are ascertaining the integrity of that information?

Mr Vickers : Yes. SMEs with 20 employees and $5 million is a general rule of thumb applied across government.

Senator KROGER: Thank you, so that is the same as the ABS. What percentage of funding from the grant program would go towards small business?

If you have it on hand, that would be great; otherwise, I am happy to put it on notice for the period 2011-12 and the year before that, 2010-11.

Mr Vickers : I probably have to take it on notice to give you the exact figure but I can tell you it is of the order of 75 per cent.

Senator KROGER: Is that a budgeted forecast?

Mr Yuile : I have an exact figure here: this is for the 2010-11 grant year and the grant year applies to the year—

Senator KROGER: I am assuming that a grant year is the financial year.

Mr Yuile : No, it is not.

Senator KROGER: It is the calendar year.

Mr Yuile : It is the year before. When we say grant year, it is the year in which the activities are undertaken and against which the claims are made. It is paid in the following year.

Senator KROGER: An in arrears type of arrangement.

Mr Yuile : That is right. So in other words the exporter has to expend the export promotion income in one year and then he claims it in the following year.

Senator KROGER: So you account for that as that year for which the claim—

Mr Yuile : The year in which the activity—

Senator KROGER: not the year in which it might be paid out.

Mr Yuile : We can differentiate those two things for you, but in the 2010-11 grant year—that is, it was paid in 2011-12—there were 74.3 per cent of grant recipients who reported an annual income of $5 million or less; and 74.7 per cent—so nearly 75 per cent—of recipients who reported fewer than 20 employees. So 75 per cent is a—

Senator KROGER: So you could consider it would be reasonable to forecast that it would be roughly three-quarters of the grant program.

Mr Yuile : It has been about that—

Senator KROGER: So that is how it falls. What is the total dollar value of goods exported by Australian businesses? Do you have those figures?

Mr Yuile : Sorry: do you mean people who have claimed EMDG grants or do you mean the totality of—

Senator KROGER: In total.

Mr Yuile : It is about $310 billion roughly over the last year—is that right?

Mr Gosper : In 2012, Australian exports were $301.1 billion.

Senator KROGER: Do you have the breakdown of those that participated in the grant program and those that did not as part of that?

Mr Vickers : No. The figures are collected separately. We track some information about sales, but it is not a key part of scheme and it does not accord with ABS data.

Senator KROGER: Is it possible—and I am seeking your guidance here—to ascertain that?

Mr Vickers : No, I do not think it is possible to ascertain which businesses appear in the ABS data. There are two quite different physical exercises. Also, it is not a requirement to have the sales data audited in EMDG, so it is not a dependable number that you could compare.

Senator KROGER: Do you then measure and have return on investment figures for the program?

Mr Vickers : The scheme does not really have a return on investment figure. As I said to the previous senator's question, we have done some econometrics studies that look at all the government's investment in the EMDG, what returns it achieves, and I am quite happy to provide those reports—or summaries of those reports.

Senator KROGER: That would be great. What is the measure, if you like, of the effectiveness of the grant program?

Mr Vickers : The effectiveness of the grant program is the extent to which exporters go on to become sustainable self-supporting exporters in the long-term. The goal of the scheme is to take exporters who are starting out in exporting and support their marketing efforts so they become established in a market. They graduate from the scheme. They no longer receive grants and they go on to become successful exporters earning income and creating employment for Australians.

Senator KROGER: What datado you have available to you or do you collect to be able to make a determination as to whether there is a particular business group or otherwise that may be more successful than others? In other words, how do you measure those small businesses that the grantprogram probably has a greater value-add benefit to?

Mr Vickers : When we do a review of the scheme, which we are required to do each five years, we do look at those measures. We look at measures such as would the export marketing investment have occurred without the grants scheme? We survey the people who have received the grants and ascertain that. We look at their relative growth rates, we look at their relative exports and we look at their history.

Senator KROGER: Going back to your earlier answer, do you have the value amount of the total export value of the small businesses in the EMDG program?

Mr Vickers : The short answer is that, for each particular year, we do not. That is because one of the features of the grants scheme is that you are not required to achieve any export successes in the first two years. We ask people to report that. We do have some records but we do not audit them so that data is not as reliable as other facets of the scheme. But we do have some data which if you are happy to take it as an estimation.

Senator KROGER: I am happy to take it. I am also quite interested in terms of how you assess more successful business models over others. There may be a pattern or there may not be a pattern, but I would have thought that unless you are collecting that data it is hard to assess that.

Mr Vickers : I can tell you for the 2010-2011 grants year, which is export expenditure undertaken by companies in the financial year 2010 to 2011, those 3,277 applicants have reported export sales of $3.2 billion and the employment of 103,557 Australians.

Senator KROGER: Those figures sound impressive, just off the top.

Mr Vickers : It is impressive. I am stressing that these figures are not audited at the same level as other aspects of the scheme. They are self-reported figures by the applicants.

Senator KROGER: I presume the requirements for the grant program, for people to make submissions to be considered for it are up on a website somewhere. How do I find those?

Mr Vickers : They are on our website and we can certainly prepare a summary and provide that to you.

Senator KROGER: That would be helpful. When you are considering grant applications, what are the market tests that you would apply in considering those grant applications?

Mr Vickers : EMDG is not a discretionary grant. It is a legislated grant, so to receive—

Mr Yuile : May I interrupt. I think 'grant' is not the right term. It has been called that for 30-odd years—

Mr Vickers : More than 35 years—

Mr Yuile : More than 35 years but, when you consider grant schemes, typically you are thinking about discretionary grants. But these are not discretionary grants. There is legislated eligibility for which an exporter can apply if they meet the criteria in terms of the turnover of the company. Companies with over $50 million turnover levels are not eligible to apply. That gets back to your point about being directed as an SME, small- to medium- sized enterprise. There are also some limitations. They have to spend a certain amount of promotional expenditure before they can apply for a grant. Again, they have to have skin in the game.

Senator KROGER: I saw that. I think they have to spend $20,000 or something.

Mr Yuile : Correct. If they meet those criteria, then they can apply for a rebate against their export promotional expenditure. This can go to collateral for their marketing, an overseas agent, attendance at an exhibition or a trade fair. Those eligibility criteria are set out in legislation and they apply against those eligibility criteria. We have an EMDG audit team to assess those applications.

Senator KROGER: Does the EMDG program have any crossover with state programs designed to encourage the setting up of businesses and so on?

Mr Vickers : Generally, the state government programs sit below EMDG. There is usually careful consideration by state government programs not to overlap with the EMDG because it would be an ineffective use of state government money. Many state government export assistance programs are more flexible and they focus on the pre-phase before people qualify for EMDG.

Senator KROGER: From your perspective is that a problem? Is it impacting on you?

Mr Vickers : No. There has been a general decline over a few years in the number of state government programs in this area. It is just the policy cycle. I would not describe that as an overlap problem with state government grant schemes at all.

Senator KROGER: The way in which you apply this is very interesting. I will put some more detailed questions on notice. When you talk about determining the spend requirements before the grant can be complied with, whether you include the turnover of a business in the determination of an application—

Mr Yuile : They have to be below $50 million in order to qualify.

Senator KROGER: I will leave it there. Thank you very much. I know Senator Mason wanted to ask some questions but I presume he has been called to another committee.

CHAIR: That is right. You can anticipate some questions on notice from Senator Mason about education. That now concludes our examination of the trade portfolios. I thank everyone for their assistance this evening.

Proceedings suspended from 18:12 to 1930